Following the Money - French bank activities in tax havens

Tuesday, March 1, 2016

France - What are the banks up to in tax havens? Since the financial crisis in 2008, this question has been regularly asked as tax avoidance and evasion scandals have filled the press time and time again.

First of all, concerns have arisen about the way banks use tax havens for the same purposes as other multinationals – they can artificially transfer profits made in the countries where they actually operate to reduce their tax bill. Some scandals, like Swissleaks which broke in February 2015, demonstrate that banks can also use tax havens to allow their customers to cheat the tax authorities. Others, like the collapse of the UK’s Northern Rock bank in 2007 show how banks use these territories’ lack of transparency to avoid their regulatory obligations. Such practices could not exist without legal and administrative facilities, minimal tax rates and the lack of transparency inherent in tax havens. Importantly, tax havens aren’t for tax purposes only. To be precise we ought to speak consistently of tax, legal and regulatory havens.

Each of these practices has serious consequences. With regards to tax, it means hundreds of billions of euros go unpaid to the treasuries of countries in the North as well as the South. This vast amount of money is vital for funding public services, infrastructure and social services as well as redistributing wealth in order to reduce growing inequality. According to a recent parliamentary report, France loses between €40 and €60 billion in tax revenue each year, which is almost equivalent to the national education budget, one of the top budget areas of 2015. In addition to the countries in the North, it must be emphasized developing countries are particularly affected by tax evasion and avoidance. A recent IMF study revealed that the loss of tax revenue due to tax evasion by large corporations is proportionately 30% greater in developing countries than in the OECD. With regards to regulation, the consequences are just as serious. Banks are allowed to avoid their regulatory obligations by being permitted to vastly exceed normal prudential ratios. Regulatory havens seriously endanger the international financial system.

All that could be done was register the widespread presence of banks in tax havens, speculate about why they selected these locations and reflect on vague responses; that they had set up there, as elsewhere, “for business reasons” and “to serve local customers”. An impenetrable veil protected their international activities, as is the case today for large multinationals. In 2013, following the widespread involvement of civil society, a first step towards transparency was made. French and European banks are now required to publish information on their activities (profits and turnover), staff, tax paid and subsidies received in each territory in which they are established, including tax havens.

The purpose of such country-by-country reporting - a key means by which to combat tax avoidance - is to allow everyone to know if banks are really operating in tax haven territories, or if they are using them to offshore profits artificially, to avoid tax or to manage certain high risk assets and thus avoid their regulatory obligations.

CCFD-Terre Solidaire, Oxfam France and Secours Catholique – Caritas France, in partnership with the Plateforme Paradis Fiscaux et Judiciaires8 [tax and legal havens platform] (PPFJ) analysed the data for the five biggest French banks. This investigation followed a previous report on the initial information the banks published in 2014. Newly released information (of profits and taxes) allows us to produce new indicators that confirm our initial hypothesis – not only are tax havens at the heart of French international banking, but how the banks use them is very specific. The information shows that French banks make a third of their profits in overseas tax havens, yet they only represent a quarter of their reported international business, a fifth of their taxes and just a sixth of their employees. These figures alone show the disconnection between the territories in which banks operate and have staff, and those from which they derive their profits.